The Chief Economist for Windermere Real Estate, Matthew Gardner, made a stop in the Snoqualmie Valley on September 5th to offer his insight into the U.S. economy, the Puget Sound economy and the Snoqualmie Valley real estate market.
Gardner was the featured speaker at an event hosted by local Snoqualmie real estate group, The Siwek Team, at the Club at Snoqualmie Ridge.
As far as the U.S. economy goes, Gardner summarized it as being in a ‘Goldilocks Zone,’ meaning it’s not hot nor cold. Businesses continued to add jobs (think 106 straight months) and unemployment remains low/stable.
He did say he sees a few recession indicators popping up, but said recessions don’t scare him as historically the U.S. economy has always been cyclical with about 5.5 years between recessions. Some of the recession indicators mentioned were inverted yield curves, the manufacturing index trending downward and a more cautious consumer sentiment.
Gardner said trade wars are the culprit for the manufacturing retraction, which he didn’t see being resolved anytime soon. He noted that other countries were already in recessions, including Australia.
He said the national economy is not currently in a recession and reminded the room that U.S. has survived all recessions to date. He remains optimistic about the economy through next year, predicting sub 2% economy growth, but after mid 2020 he is more pessimistic.
So why does he think the U.S. might enter a recession? Companies struggling to hire is one reason. Gardner says currently there are 7.5 million job openings in the U.S. but not enough workers to fill them – and wage growth just isn’t there, especially when inflation is factored in. The U.S. is a consumer economy and if wages aren’t growing, he said people aren’t buying things.
So how might this all impact the local housing market? In a nutshell, Gardner said a potential recession won’t hurt home prices, especially not like they did in the 2008 recession when the people were in homes they couldn’t afford and in mortgages they should’ve never qualified for.
Gardner said the Puget Sound real estate market is ‘well and above’ many other U.S. markets, but the currently it is a ‘more rationale housing market.’ Gone are the years of 15-20% price increases.
Growth in listing activity has faded in recent months, but lower financing costs are improving sales. Listings with price cuts are still elevated, which could mean sellers are still coming to terms with the new, more normal housing market.
There is still a big affordability problem in the Puget Sound region, though. Gardner said factors causing this are a lack of new homes being built, which put pricing pressure on existing homes. Expensive building regulations, materials, labor costs (think 330,000 unfilled construction jobs) and land are all factors impacting home builders – so Gardner said they’re just not building as much as they used to.
Fewer new homes means added pressure on re-sale homes. Factor in that people are staying in their homes longer, and it’s the recipe for inventory and affordability issues across the region.
In Seattle, only 36% of homes sold were considered affordable – meaning those purchasing the homes had the income for to afford the payment. But Seattle is no where near the least affordable housing market. Nope. Think California for all the top spots.
Gardner said the Seattle/King County affordability issue has sent many homebuyers to the Tacoma area, which is experiencing a very competitive housing market. For decades many headed north to Snohomish County for cheaper homes, but even those aren’t affordable anymore – so more buyers are heading south.
So are we in another bubble? Gardner says no, noting the credit worthiness of buyers (average 740 credit score), the stringent requirements for mortgages; a very small percentage of buyers using ARMs; very few homeowners foreclosing and another positive note – 25% of homes in the U.S. have 50% equity.
Gardner said, “Overpriced homes doesn’t mean we’re in a bubble. It just means overpriced.”
So what about the Snoqualmie Valley housing market?
Gardner said not to underestimate the impact Amazon’s expansion into Bellevue. The tech giant will have 3.6 million sq. feet of office space in downtown Bellevue by the end of 2024. He thinks this could be a boom to the Eastside market, but in an organic – not rushed – way.
The local economy will also continue to outpace the U.S. economy, regional corporate growth is still happening, as is regional income growth.
There’s still a big demand in the Snoqualmie Valley as homes are more affordable than other Eastside areas. But the master-planned community building boom is over. Snoqualmie Ridge is almost complete and only short plat new housing developments are on the horizon, which again means added pressure on re-sale homes.
Overall, prices are growing slower than during the ‘crazy’ multiple offer environment of two years ago. Gardner predicts more sustainable price growth, but prices are predicted to continue upward. Why? More people want to buy than sell and the Snoqualmie Valley is a safe place with good schools, which is what homebuyers with children look for.
Gardner said for areas located 25-40 minutes from where people need to be, prices will continue to rise. He said, “For well priced and located homes, selling is not a problem.” In the Valley, the current sales time is about two months. Historically, four months to sell is normal.
So who’s buying? Think Millennials. According to Gardner they are the county’s biggest generation (79 million); the largest generational cohort in the workforce and more than 1 million of them are becoming moms each year. They also made up 45% of homebuyers in Seattle last year – with great credit scores and sizable down payments.
In the Snoqualmie Valley (Fall City, Snoqualmie and North Bend) Gardner predicts home prices to rise about 8% in 2019 and 2020. This is year-over year-growth. 2018 was relatively flat after huge price jumps in 2016 and 2017.
Christina Siwek of the Siwek Team said, “After a quieter summer then we have seen in the last several years, we are starting to see our local market pick back up. Locally we have still managed to appreciate year over year, but interest rates are down by almost 1%, meaning that your monthly payment would be lower today than if you bought a year ago. Inventory is shrinking and we’re starting to see more multiple offer situations slowly coming back into our local market. With less competition, it’s a great time to sell and with very low interest rates, it’s also a good time to purchase. It’s a good time to be both a buyer and a seller; something that I think is a huge positive for our Snoqualmie Valley Real Estate Market.”